It’s Definitely the Silly Season

It’s that time in Summer when the sun has come out and media staff take their holidays. The stock market is just bouncing around with no clear direction of travel although large tech stocks are going up while small cap stocks remain in the doldrums.

Politics are just getting to be ridiculous while media stories have nothing better to talk about than what will Boris Johnson do next? Write for the Daily Mail is one new job apparently.

The hot weather encourages quick decisions but I think Boris would do best to ponder his future at some length. One commentator suggested Boris was trying to emulate Winston Churchill by becoming a famous writer until called back into politics when the country needed him but being in the wilderness for a while may be a good sabbatical for Boris I suggest.

As an example of how impulsive the current market is yesterday GB Group (GBG), in which I have a holding, fell about 10% but rose by 7% this morning. The fall was due to a large write down of goodwill apparently as a result of over-paying for a recent acquisition. This will be a non-cash charge in the accounts of course but it does not inspire confidence in the management while there are the usual several explanations for the poor results. Is this a temporary blip which is bound to happen when a company chooses to make a big acquisition for strategic reasons? Or is it a management failing?

Is this company faced with slower growth in what must be becoming a crowded sector for identity verification? Revenue still grew last year by 8.6% but free cash flow was down. I am beginning not to like the financial profile of this company and the share price chart over the last 5 years looks horrible but I will give them time to fix things. In the meantime, I suspect this is a sector where consolidation may soon be taking place.

Instead of spending money on holidays or putting it into the stock market I have bought a second-hand car and some other “mobility” aids. I got a surprisingly good trade-in value for my ten-year old Jaguar XF so I bought a newish Jaguar XE. Should last me as long as my life expectancy according to an optimistic doctor I saw recently.

But the vehicle is so complex you need to read a 130-page manual to figure out all the controls. As a former IT professional, I am not in the habit of reading the manual first for any new product but just like to dive in.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

You can “follow” this blog by entering your email address in the box below.  You will then receive an email alerting you to new posts as they are added.

Should Directors Get Index Linked Pay Rises?

Today I received notification of a General Meeting of Gresham House Energy Storage Fund (GRID). They are wanting to amend the previously agreed Remuneration Policy to give the directors an annual pay increase in line with the UK Consumer Price Index.

Is that reasonable? I don’t think so.

If everyone claimed such an increase then it would drive inflation higher as a matter of routine. The directors of this company should face up to the reality that we are all poorer as the result of high energy and other product prices from the war in Ukraine. They should not be protected against inflation as nobody else is.

In addition the wording of the resolution only refers to an “increase” but what if there is a general fall in prices. Are the directors going to take a pay cut?

This resolution is badly worded and is wrong in principle so I have voted against it. There may be some justification for reviewing the remuneration rate if inflation is high but it should be based on market circumstances not justification, and not be automatic.

But I had to vote via post because the on-line voting system did not recognise the Control Number.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

You can “follow” this blog by entering your email address in the box below.  You will then receive an email alerting you to new posts as they are added.

AGM Formats – Online Only?

This morning I received notification of the forthcoming AGM of ShareSoc. This will be an on-line only meeting via Zoom which surely contradicts the recommended format for AGMs even if I personally would only attend on-line due to current disabilities.

This morning I did attend the AGM of Kings Arms Yard VCT (KAY) which was also an on-line only meeting via the Lumi platform. It was well managed and all questions were answered. There were no significant issues raised and all votes were passed with large majorities. One point that was raised however was the increasing director remuneration and I voted against the Remuneration Report for that reason.

I do feel however that AGMs should be hybrid meetings not solely on-line unless there are good reasons to do otherwise. Meeting the directors in person and being able to ask questions in an informal setting gives you a lot more information and enables one to better judge whether they are competent.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

You can “follow” this blog by entering your email address in the box below.  You will then receive an email alerting you to new posts as they are added.

Should I Invest in Oil and/or Buy a New Car?

The stock market is quiescent and it is time to ponder questions such as should I buy more BP shares and should I buy an electric or hybrid car? There is an article in the FT today on the rejection of resolutions focussed on climate change at the ExxonMobil and Chevron annual meetings. It said: “shareholders solidly rejected climate change proposals at the US oil majors’ annual meetings on Wednesday, scaling back support from last year and splitting with results at peers in Europe where resolutions related to global warming have won stronger support. Only 11 per cent of Exxon shareholders supported a petition calling for the company to set emissions reduction targets that would be consistent with the goals of the 2015 Paris climate agreement. A similar proposal at Chevron received less than 10 per cent support”. See FT article here: https://www.ft.com/content/7faccadc-beef-4b10-be53-ae7aceaeafce

Resolutions on this subject at the BP and Shell AGMs were similarly defeated even though many institutional holders like to promote their green credentials.

Individual shareholders need to make up their own minds on how to vote on whether to put companies like BP and Shell out of business by stopping their oil development activities. Both BP and Shell argue for a transition to renewable energy at a pace acceptable to their customers and which does not impose unreasonable short-term costs and I agree with them. The transition to renewable energy for many purposes may make sense but for transportation carbon fuels have a very high energy intensity and the infrastructure to support electric vehicles means a high loss in the transmission system.

I have a pressing personal decision to make on this issue. My diesel-powered Jaguar XF is almost ten years old now and I like to buy a new car when they have done more than 60,000 miles as they get more unreliable and expensive to maintain after that. I don’t do many miles now so a somewhat smaller car might make some sense. But should it be an electric vehicle, a hybrid or a petrol/diesel one?

I think a hybrid is the best bet and have booked a test drive of a Toyota Corolla. They are self-charging hybrids but can only run a short distance on battery power so I am betting that petrol will be readily available for at least the next ten years.

I am surprised that Jaguar are still selling XF models but they do now have a petrol option and a “sportbrake” version which probably shows how well liked the car is but I fear that diesel will be discouraged by regulation soon.

They do sell all-electric models now but they are expensive and are bulky SUV style cars when I prefer smaller vehicles. Note that the environmental benefits of electric cars over petrol ones are quite marginal if you take the all-in lifetime environmental impact costs into account and the latest scare is that the heavier weight of electric vehicles is causing damage to our roads – thus explaining why there are so many potholes in our roads of late. The weight of current electric batteries is becoming a major problem while the production and recycling of batteries is a negative aspect not yet confronted.

Electric cars are cheaper than they used to be but they either have limited range or are expensive (£43,000 to £58,000 for a Tesla Model 3 for example, or over £70,000 for a Jaguar I-Pace).

Readers of this article can suggest alternatives for me to look at. Use the comment box below.

I could of course hold on to my current vehicle for another few years in the hope that Sadiq Khan changes his mind on the ULEZ expansion (my Jaguar XF is not compliant) or is not elected again next May. There are several strong contenders lining up to take him on. But I do so few miles within the ULEZ area (current and future) that it does not bother me much what the Mayor decides to do. Whatever he decides he is bound to be wrong based on his past decision record.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

You can “follow” this blog by entering your email address in the box below.  You will then receive an email alerting you to new posts as they are added.

Revolution Demanded at Abcam – Quite Rightly

The former CEO and founder at Abcam (ABC) is planning to call an EGM to replace the Chairman. He has published an open letter to shareholders which spells out the reasons – see https://www.globenewswire.com/news-release/2023/05/17/2671109/0/en/Jonathan-Milner-Announces-That-He-is-Taking-Steps-to-Call-an-Extraordinary-General-Meeting-of-Abcam-Shareholders.html

My comment is the sooner the better. His letter is a very good summary of where Abcam has gone wrong recently. I hope shareholders will support him.

I purchased Abcam shares in 2006 soon after the company listed on AIM in 2005. I still have my analysis of the shares made at the time which included a cash return on capital of 78% and a prospective p/e of 22. Revenue was growing at a fast pace and all went well under the leadership of Jonathan Milner as CEO for several years.

But even before he stepped down in 2020 the business was clearly in some difficulties. I commented on this blog negatively about the large expenses on new IT systems (which was capitalised) and very generous remuneration schemes. I could not get my reasonable questions answered by the Chairman at the AGMs I attended and subsequently voted against him.

You can search this blog for the past articles on Abcam which reinforce what Mr Milner is saying.

But the last straw was the delisting from AIM and the move to NASDAQ in 2022. As Mr Milner points out, this was pointless and has not benefited shareholders. I sold most of my shares starting in 2020 and the balance only recently – overall return of about 30% per annum since 2006. But the recent financial figures have been disappointing with margins declining and way too many adjustments.

The conversion of Abcam shares to ADRs for the NASDAQ listing may help to frustrate the calling and voting at an EGM.

Mr Milner says the current Chairman is weak – I agree. He needs to go with a refreshed board put in place.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

You can “follow” this blog by entering your email address in the box below.  You will then receive an email alerting you to new posts as they are added.

Should ISAs Be Simplified? And AJ Bell Results

This morning AJ Bell announced their interim results. It is one of the UK’s largest investment platform operators and has been very successful at growing its customer base through having low charges and a simple user interface, particularly for SIPPs.

Customers grew by 7% in the platform business and overall revenue was up 37% with profits up 61%.

But the CEO has promoted the idea of simplifying the ISA regime. He says “Over the years a once simple product has fragmented into multiple versions with different rules and benefits. In proposals presented to the Chancellor, we have outlined a system which combines the many current versions into one ISA product that would be easy for people to understand and would encourage more investment”.

I am all in favour of that proposal. The financial world is complex enough and the different ISAs can potentially confuse and discourage new investors.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

You can “follow” this blog by entering your email address in the box below.  You will then receive an email alerting you to new posts as they are added.

Shell AGM Disrupted

I am watching the Shell AGM and it has been disrupted by a campaign group chanting “Welcome to Hell” that has gone on for more than 15 minutes now.

Chairman Sir Andrew McKenzie has not taken vigorous action to stop the disruption. He should have ejected the objectors or suspended the meeting until order was resumed.

As a shareholder in Shell I consider this attempt to defeat the purpose of the meeting is an absolute disgrace.

As at the BP AGM, the Chairman was totally ineffective in controlling the mob.

Postscript: after 3 hours I am still watching the AGM. It has become more civilised after an attempt by some attendees to storm the top table. The CEO, Wael Sawan, made a good speech which covered the company’s decarbonisation programme. The target is net zero emissions by 2050. The plan is a balanced energy transition. He said that cutting supply while demand is unchanged does not work.

Based on the proxy vote counts, 80% of shareholders voted against Resolution 26 (the one requisitioned by protestors) while 80% supported the boards resolution (no.  25). That’s a quite decisive support of the company’s strategy.

There were some intelligent questions in the Q&A session and a few complaints about the timing and venue.

How to make these meetings shorter and avoid disruption by a vociferous minority? Could I suggest: more vetting of attendees or just make it an on-line only meeting. A more vigorous role by the Chairman would also help.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

You can “follow” this blog by entering your email address in the box below.  You will then receive an email alerting you to new posts as they are added.

EKF Diagnostics AGM Report

This morning I “attended” the Annual General Meeting of EKF Diagnostics (EKF).  This was a “hybrid” meeting with the physical meeting in Cardiff and the on-line aspect run on Zoom which I logged into. It was reasonably well attended both ways with a number of questions posed. The meeting ran for about one hour.

The company benefited greatly from the Covid epidemic when revenue peaked at £82 million in 2021, but it reported losses in 2022 as the epidemic declined and the market changed. Profits are forecast in 2023 however.

I did not learn much from the meeting except they are apparently still looking for a new CEO (they currently have an executive chairman which I generally dislike). As usual with medical companies they have difficulty in selling to the NHS who want to do everything centrally (different to the rest of the world) but they are still selling in Russia and don’t plan to withdraw from that market – profits generated there cannot be repatriated but by increasing their product prices they can obtain a return.

The meeting was difficult to follow because the internet link at the company’s end kept breaking. If companies are going to run hybrid AGMs they need to use reliable technology such as by using the Investor Meet Company platform.

Otherwise the meeting was well run.

I asked one question as to why they had a share buy-back resolution on the agenda which I voted against. Apparently they have no current intention of using it.

The company clearly has ambitions to grow its revenue and profits and the share price does not seem expensive to me on prospective earnings and dividend yield, but readers can no doubt make up their own mind on that.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

You can “follow” this blog by entering your email address in the box below.  You will then receive an email alerting you to new posts as they are added.

Inflation Not Under Control

Back in March I said: “As I suggested in my comments on the budget, the probability of inflation falling to 2.9% by the end of the year is a grossly optimistic forecast”. And so it has turned out to be. Instead of inflation falling below its 2 per cent target within a year, which the Bank of England had forecast, the Bank now thinks it will only hit the goal in 2025. So Bank Rate has been raised again to 4.5%.

It really brings into question the competence of Andrew Bailey and Bank of England forecasters when an amateur financial commentator like me can be more accurate.

Inflation is always very sticky. When people see prices rising they adjust the prices they expect to pay and the wages they demand. And companies pay little attention to the exhortations of politicians.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

You can “follow” this blog by entering your email address in the box below.  You will then receive an email alerting you to new posts as they are added.

Young People’s Poor Knowledge of Investments

The AIC published an interesting press release last week. It was headlined “Young people more aware of cryptocurrency than any other investment”.

Young people they class as those aged 20-40 but it shows an astonishing ignorance of different types of investment. Even more astonishing is that they rely on web searches, Instagram, YouTube, Facebook and Twitter as sources of financial information.

Some 70% of survey respondents were aware of cryptocurrencies such as Bitcoin, but only 18% of investment trusts.

The fact that most of these media that young people rely on are motivated by the desire to sell something to investors shows how easy it is for young investors to get misled. You can see why new investors are so easily sucked into speculative investments of one kind or another.

See https://www.theaic.co.uk/aic/news/press-releases/young-people-more-aware-of-cryptocurrency-than-any-other-investment for the full press release.

How to solve this problem? Education is one key and at a young age. But anything taught in school at age 15 will soon get forgotten, and be swamped by clever marketing by financial promoters.

ShareSoc has been working on this issue via their “Investor Academy” (see https://www.sharesoc.org/investor-academy/ ) but it does not seem to be having a great impact so far. There is little incentive to learn.

The only way I can see this state of affairs improving would be if investors had to pass a qualifying examination before they could invest in some types of investments. Having “health warnings” on cryptocurrency investment schemes is not enough.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

You can “follow” this blog by entering your email address in the box below.  You will then receive an email alerting you to new posts as they are added.